Grow your dividends

For Financial Freedom

Investment Strategy

Introduction
There are many different investing strategies one may employ such as day trading, swing trading, and my favorite, buy and hold forever (well at least that's the plan) dividend growth investing (DGI). I believe with my timeline, DGI is an excellent choice that will create a stable stream of income for years to come.


Goal
My overall goal is to retire by the time I am 55 years old. Given that I have recently turned 25, this gives me 30 years to accomplish this life goal. In doing so, a subgoal is to accumulate a DGI portfolio valued at over $1 million and partially live off of the passive dividend income generating from this portfolio. At the time of this writing, my average Yield on Cost (YoC) is 3.27%, however, I anticipate my YoC gradually going up as I continue my investing journey and buy during future dips and economic downturns. 


Robinhood
Out of dozens of respectable stock brokerages out in the market, why have I decided to invest on Robinhood? I started to get curious about the stock market in the fall of 2015. I had graduated college the year before and was taking the year off to travel the world and start studying for the LSAT. I wanted to start investing in the stock market but with a limited budget, there was no way I could efficiently invest with those pesky commission fees. That's where I came across Robinhood and its mission statement to provide accessible investing to everyone. I was hooked and had deposited $250 that month. Even a $4.95 commission fee would have seriously hampered my potential returns. 

Robinhood sounds like a complete paradise but is it really? The few only cons with me picking Robinhood as my investment vehicle is the lack of a Dividend Reinvestment Plan (DRIPs) feature and my personal choice to invest in a taxable account. Capital gains and dividend income would be tax-deferred in an employer-sponsored 401k or Roth IRA, however, there are strict withdrawal restrictions and rules. After law school, I eventually plan to become self-employed so a 401k is off the tables. The earliest age I could withdraw from a Roth IRA is 59 1/2 years old and even then, I will be taxed at my tax rate at that age. Due to outside sources of stable income (think real estate), I will not be in a lower tax bracket at age 59 1/2 (assuming federal and state taxation rates remain similar if not the same). In addition, I like the idea of withdrawing from my Robinhood portfolio should anything dire, God forbid, were to happen so I highly value the liquidity aspect. Therefore, I felt like investing in a taxable investment account for my progress. That is not to say I will stick with Robinhood for the long term. As I graduate from law school in a couple years and reap a larger income, I will be able to contribute more to the DGI Portfolio where paying a $4.95 (or hopefully even less in the future) is worth the advanced research tools available elsewhere. But until then, I will be using Robinhood to grow my portfolio. 

If you are interested in trying out Robinhood, please use my link to register so you and I both receive a free stock! It would greatly help me improve my portfolio. 


P.S- I am not sponsored by the company in any way. I just like the product and services that they are offering. 


 
 
​Building the DGI Portfolio
In a nutshell, DGI is a long-term investment strategy of investing in stable growing companies with an increasing dividend. Through the concept of compounding interest, an original investment in a stable company with increasing dividends will theoretically provide returns dozens if not hundreds of percentages in decades. With its roots formulated by successful investors like Benjamin Graham and Warren Buffet, dividend investing is a time-proven investment strategy that is sometimes pushed to the sidelines by the "get rich" schemes perpetuated by penny stocks and Wall St. day trading. Dividends is one indicator of a company's financial health. Paying a dividend is a completely voluntary decision by a company's management and suggests that the company is profitable and cost-efficient. As shown below, a $100 investment into dividend growth companies at the beginning of 1972 would have significantly outperformed a multitude of other stocks in the market.


With the markets being at an all-time high, I will have to invest prudently and always be prepared to buy on a dip to cost average my basis. I will have to look at a particular company and ask myself, "is this company profitable? And if so, is its share price currently valuable? Lastly, do I see that this company maintains some sort of economic moat that will help keep it in business for decades to come?" With these factors in mind, I plan to start and add positions as time passes.